Cash flow. Two words that sound so sweet, but in reality, cash flow can feel chaotic!
Across industries, businesses big and small are constantly on the lookout for new and effective ways to manage their cash flow—but frankly, construction cash flow issues are some of the worst. According to a 2019 study, construction payment takes an average of 83 days—among the longest of any industry in the world.
COVID-19 has made delays even worse. From increased risks and interrupted project funding to managing slow, late or partial payments, construction companies across the country are facing challenges when it comes to managing cash flow.
Most small business owners primarily focus on the operational activities of their company. They may not realize what a difference certain financing purchases can make in how much cash flow is available on a daily basis. Discovering where your cash flow comes from (and where it goes) can be as eye-opening as it is beneficial.
How to Conduct a Cash Flow Analysis
A cash flow analysis examines how a business generates and spends money over a given period of time—usually 13 weeks. In order to conduct a cash flow analysis, you need to prepare your cash flow statement first. Cash flow is all of the cash that comes in and goes out of your business. A cash flow statement records this activity.
Every construction company needs the right accounting reports and financial documents to determine where their cash flow is healthy and where it needs some help. Can you afford that new piece of equipment? Will you need additional financing in the coming year? We can determine what your cash flow will look like for the next 12–18 months and help you plan for these situations.
We’ve also got your back if your construction business has been impacted by COVID-19. Whether you have seen a delay in payments, reduction in work or any other unexpected changes, we can help you conduct a cash flow analysis and create a balance sheet and income statement so that your business stays healthy.
Once we’ve completed your cash flow analysis, we’ll have a better understanding of the health of your company. If you’re in need of financial support, we can help you decide whether taking out a small, short-term loan is the right choice for your business. Because we care about the health of your business—and consequently your cash flow—we’ll do everything we can to help you avoid unnecessary debt.
Understanding Capital Outlays
Any business that relies on fixed assets like buildings, equipment or vehicles has to spend money to replace or repair those assets at some point. These expenses are known as capital outlays. At Froehling Anderson, our experienced accounting experts can help you determine whether it makes sense to buy something new or repair what you have. We can also help you determine whether you’ll break even after buying new equipment and what your future capital outlays may look like.
The Difference Between Investments & Maintenance
For the most part, capital outlays are pretty straightforward—but there’s one important distinction to keep in mind when finalizing your financial statements.
Let’s say you buy a new truck. That’s a capital outlay (hooray!) because it’s money you spent to acquire a new fixed asset. If you choose to replace an existing truck’s engine for purposes of improving the asset, that’s a capital outlay too, because the new engine will give your fixed asset a longer life. However, replacing the tires or changing the oil on an existing truck is not considered a capital outlay—rather, it’s categorized as maintenance.
How an Outsourced CFO Service Can Benefit Your Construction Company
Strong accounting and financial practices help business owners across industries manage their cash flow to identify and solve the company’s strengths and weaknesses and make more informed decisions to help the company grow. Analyzing cash flow with our highly qualified CPAs can help you stay on track.
Our cash flow analysis process can help your company avoid problems before they arrive. Even the most financially healthy businesses can benefit from a conversation with one of our trusted experts. It never hurts to get to know your cash flow better!
We encourage clients who want to avoid possible issues down the line to conduct regular cash flow analyses before they find themselves in financial distress. But wherever you’re at, we’ll meet you there and help you pave the right path forward.
